Part A Equilibrium for the Perfectly Competitive Industry Consider Figure 34.1. Assume that the market described by the figure is perfectly competitive, and MC represents the horizontal summation of marginal cost curves and, therefore, the market supply curve. Use Figure 34.1 to answer the following questions. Figure 34.1 Perfect Competition 12 MC 11 10 9. 8. 7. 3 2. 1 2 3 45 6 7 89 10 11 12 QUANTITY 1. What quantity of output will be produced? 2. What price will the market establish? 3. Calculate the amount of the consumer surplus. Darkly shade the area of consumer surplus. 4. Calculate the amount of the producer surplus. Lightly shade the area of producer surplus. COSTS/REVENUE

Use the figure below to answer the following question. Total revenue and total cost (dollars) 400 300 Z 200 100 Q 0 99 Quantity Figure 12.2.1 Refer to Figure 12.2.1, which shows a perfectly competitive firm's total revenue and total cost curves. Which one of the following statements is false? A) At an output of Q1 units a day, the firm makes zero economic profit. B) At an output less than Q1 units a day, the firm incurs an economic loss. OC) At an output of Q2 units a day, the firm incurs an economic loss. D) Economic profit is the vertical distance between the total revenue curve and the total cost curve. E) At an output greater than Q3 units a day, the firm incurs an economic loss. Main Content

A firm producing ice pop in a perfectly competitive market with an equilibrium price of $1.50 has the following Quantity of ice Total Cost pops 0 $3 10 $8.00 20 20 $10.50 30 $15.50 59 40 $30.50 50 $50.50 60 60 $75.50 70 70 $105.50 What is this firm's marginal revenue from the 50th unit? MR(50) = $ What is this firm's marginal revenue from the 60th unit? MR(60) = $

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Question 5 Let's suppose that a perfectly competitive firm has the following revenue and cost data. How many products should the firm produce in order to maximize its profits? You can assume that the firm's price is greater than its average variable cost. Quantity Marginal Revenue Marginal Cost 40 $4 $7.70 41 $4 $5.10 42 $4 $3.30 43 $4 $2.10 44 $4 $2.50 45 $4 $3.70 46 $4 $4.10 47 $4 $5.20 48 $4 $10 Question 6 What is the profit maximizing (or loss minimizing) rule for a firm in perfect competition? Be sure to list all of the conditions.

QUESTION 11 Consider the following setup for a perfectly competitive market: Suppose that for the firm, TC=625+ Q² and MC=20, and for the industry, demand is given by P= 100-Q and supply is given by S=Q. Solve for the market output and corresponding price. O Q=50, P-50 O Q=25, P=75 O Q=75, P=25 O Q=50, P=25

3. Consider the perfectly competitive markets for bottled water in two cities, A and B. Both have a downward-sloping demand curve and upward-sloping supply curve, and each market is currently in long run equilibrium at the same price. The demand curves are similar, but in city A the supply curve is more price elastic than in city B. a) There's a shock: an accident causes the tap water in the area to become undrinkable. In two diagrams, one for each city, compare the effect on price and quantity traded in the two cities, assuming that a new equilibrium is reached. Explain your diagrams. b) Following on from your answer to a), explain what would happen in the model to the number of suppliers and their profitability, in each of the short run and the long run.

Assume that a firm in a perfectly competitive industry has the following total cost schedule: Calculate a marginal cost and an average cost schedule for the firm to complete the following table. Output Total Cost Marginal Cost Average Cost (units) ($) ($) ($) 10 440     15 600     20 720     25 900     30 1,200     35 1,540     40 1,920       If the prevailing market price is $68 per unit,      units will be produced. Profits per unit will be      and total profits will be     .   Is the industry in long-run equilibrium at this price? No   Yes

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